SFR shows some glimmers of hope as turnaround continues

The French mobile price war continues to rage, but latest first-half figures from Vivendi-owned SFR indicate that it has made some progress in reversing its fortunes, although a reduction in the company's full-year profit forecast indicates further cost cuts are required.

SFR recorded an 11.3 per cent drop in first-half revenue to €5.11 billion ($6.7 billion) due to the impact of price cuts in response to the competitive environment and to price cuts imposed by the regulators. SFR's EBITDA came in at €1.470 million in the first half, a 20.5 per cent decrease compared to first half 2012. The second quarter's EBITDA was €768 million, down 16.3 per cent compared to the second quarter of 2012.

However, the company saw a net increase of 809,000 postpaid customers, taking its postpaid customer base to 17.37 million by the end of June. The total mobile customer base reached 21.05 million.

In the second quarter, "SFR recorded its best sales performance in 18 months, thanks to a significant decrease in its churn rate," Vivendi said in a statement.

Nonetheless, Vivendi cut the full-year profit forecast for SFR to €2.8 billion from €2.9 billion due to the decline in second-quarter revenue. CFO Philippe Capron described overall group results as "disappointing" based on the combined performances of its four remaining divisions, according to Bloomberg. Total group revenue was down 1.5 per cent in the first half of 2013 at €10.84 billion.

Activision and Maroc Telecom, which is in the process of being sold to Etisalat, were taken out of Vivendi's accounting for the second quarter. Vivendi is in the midst of a broad revamp to reduce its debt and focus on its media businesses.

Analysts were reasonably optimistic following the results announcement, and say the situation on the French market is improving following the price upheaval caused by low-cost operator Free Mobile at the start of 2012.

"The signs on French mobile are starting to be more encouraging. Vivendi just needs to strip out more costs at SFR," Kepler Capital Markets analyst Conor O'Shea told Reuters.

Capron said SFR is cutting costs faster than planned, Bloomberg reported, and is on the right track to turn around its business next year, with cost-cutting efforts starting to take hold this year. The company said its voluntary redundancy plan will end on Aug. 31. Vivendi was not prepared to comment on plans for a possible initial public offering for SFR, however.

SFR is already in discussions with Bouygues Telecom about sharing part of their mobile networks. The operator, which launched LTE services in Paris this week, plans to continue its LTE expansion this year, and said its objective is 70 per cent population coverage with LTE and dual-carrier HSPA+ by the end of 2013, of which half will be LTE. Capital expenditures this year will be unchanged at €1.6 billion.

For more:
- see this Vivendi release
- see this Reuters article
- see this Bloomberg article

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